Connect with us
Advertisement

Surplus budget fails as deficit spills over to second half of NDP 11

The 2020/21 national budget projections forecast another deficit for Botswana; this emerged at a Budget Pitso and launch of the Budget strategy paper by the Ministry of Finance & Economic Development in Gabcorone this week.

Deliberating on the strategy paper, experts from the Ministry said the 2020/21 budget points to a deficit, contrary to one of the NDP 11 fiscal objective of maintaining modest surpluses in the second half of the Plan period. When National Development Plan 11 was launched in 2017 it was revealed that the first three financial years would run at a contained budget deficit financed from both external and domestic capital market. This was reiterated by Minister of Finance Kenneth Matambo when delivering the 2019/20 Budget Speech in February his year. He said government would be eying a slight surplus going into 2020.

However discussions from the Budget Pitso as well as figures contained in the strategy paper reveal something completely different. Budget defict runs will spill over into the second half of NDP 11.The current 2019/2020 budget marks the end of the first half of the implementation of the National Development Plan (NDP) 11.

Since the beginning of the implementation of NDP 11 in 2017/2018, a cumulative budget deficit of P16.11 billion has been recorded. This according to authorities from the national treasury was largely due to a decline in projected mineral revenues against the rising recurrent commitments.

2020/21 EXPENDITURE WILL SUFFOCATE REVENUE STREAMS

In the upcoming financial year projected Total Revenues and Grants for 2020/2021 amounts to P59.1 billion, representing an increase of 1.5 percent, compared to P58.2 billion estimated in 2019/2020. The projected slow growth in total revenues is largely driven by the Mineral revenues, which is expected to account for 29.6 percent to the total revenue, followed by Customs and Excise revenues at 26 percent.

Ministry of Finance says compared to the NDP 11 projected figure of P62.1 billion, the forecast total revenue for 2020/2021 is well below the NDP 11 figure by 4.8 percent, reflecting to a large extent the downward revision in mineral revenues as a result of the anticipated investments at Debswana Cut 3 and Cut 9 projects which are aimed at extending the productive capacity of the two major Debswana mines. This follows the decision by Debswana Shareholders to finance the investments through dividends.

On the expenditure fronts total expenditure and net lending in 2020/2021 is projected at P66.1 billion, of which P54.1 billion is allocated for recurrent expenditure, while P12.0 billion is earmarked for development expenditure. The projected amount for the development expenditure is also below the projected NDP 11 figure of P16.9 billion by 29 percent. The downward revision in the development budget is a result of the growth in recurrent budget, following a 16.5 percent upward revision in order to cater for the projected increase in wages and salaries

OVER P6.9 BILLION DEFICIT PROJECTED

The projected figures depict a fiscal balance stand of P6.94 billion, which is 3.1 percent of GDP. Cumulatively, the deficit points to P10.86 billion during the second half of the Plan period, which is an addition to the P16.11 billion recorded in the first half of the Plan period.
The anticipated budget deficit is expected to be financed through a combination of borrowing mainly domestic and drawing down on Government cash balances held at Bank of Botswana. The ministry says this however compromises fiscal sustainability in the long term, as well as the ability to meet short term obligations such as regular payment for imports of goods and services.

PREVAILING POTENTIAL HEADWINDS

Ministry of Finance and Developmental Planning has cautioned the nation of serious trouble that lies ahead should current macroeconomic and fiscal headwinds persist. The Macroeconomic space will continue receiving headblows from the China –US trade tension putting pressure on rough diamond sales global economic outlook. It is underscored in the Budget Strategy paper that weak diamond sales pose downside risks to mineral revenues, which remain low following the decision by Debswana to finance the Cut 3 and Cut 9 projects from the dividends.

Furthermore, risks to the revenue outlook take into account the continued weak market for rough diamonds which has affected sales through De Beers Global Sightholder Sales. The negative fiscal outlook is exacerbated by increased recurrent pressures arising from the need to cater for the recent salary adjustments as well as other expenditure pressures arising from investment in critical infrastructure such as those for water and electricity. This is expected to raise the recurrent budget in the years ahead, while at the same time, crowding out development spending necessary for growth.

Finance experts say the expected decline in revenues amidst rising expenditure pressures give rise to budget deficits, which in turn, need to be financed by either borrowing or drawing down on Government cash reserves; the latter which has experienced significant deterioration over the past decade. “This has implications on the country’s ability to sustain and cushion the economy against any future external shocks, debt levels, as well as, to meet its import obligations and credit worthiness”

SUBDUED DIAMOND MARKET: HIGH RISK THREAT

Rough diamonds sales fell by well over 50 percent during the sixth De Beers Global Sightholder sales cycle, following a 16 percent drop in the second quarter of 2019. The decline in diamond sales has already started to weigh down on output, as Debswana adjusted mining production downwards during the second quarter of the year in line with the weaker demand for rough diamonds.

Production decreased by nine (9) per cent to 5.7 million carats during the second quarter of the year. This was also exacerbated by a decrease in production by 23 percent at Orapa to 2.5 million carats, following a planned plant shut down.  “Should the situation persists, it may pose further risks to the domestic revenue outlook, as it would affect the growth in mining value added and a spill over to other sectors that depend on mining activities such as manufacturing and finance business services, which include diamond cutting and polishing as well as sorting and valuation” writes Ministry of Finance on the Strategy paper.

DIVERSIFICATION OF NATIONAL REVENUE PROFILE KEY

The 2020/21 Budget Strategy paper recommends  that  appropriate measures such as diversifying the current revenue profile be put in place with a view to cushioning against any future pressures on volatile mineral and customs & excise revenue streams.
 “This calls for the need to adhere to Government’s fiscal rule of restricting further growth in the recurrent expenditure in order to create room for the subdued development budget, in particular, by allowing for spending on high return projects, which can create employment opportunities”

On the emphasis the paper underscores that there is need to restore the fiscal position of the country, as part of the maintenance of macroeconomic stability. Ministry of Finance says Successive budget deficits experienced since the commencement of NDP 11 have placed the country on an unsustainable fiscal trajectory, which needs to be seriously addressed in the second half of NDP 11. “Going forward, measures will need to be taken to restore fiscal sustainability, as part of the suite of strategies to maintain macroeconomic stability necessary for growth and employment creation.

Continue Reading

News

Botswana’s development agenda in jeopardy

21st September 2020
Botswana’s-development-agenda-in-jeopardy--water-construction

Stanbic Bank Botswana Quarterly Economic Review indicates that Botswana will fail to meet some of its Vision 2036 targets, particularly unemployment reduction and reaching high-income status.

The report says this is mainly due to the slow economic growth that the country is currently experiencing. This Quarterly Economic Review focuses on the 2020 Budget Speech.

The first paper reviews the entire budget with its key observations being that this budget is prepared as prescribed by the Public Finance Management Act; the priorities it seeks to address are drawn from Vision 2036 and the eleventh

The 2020 budget Speech, which was the maiden speech by the Minister of Finance and Economic Development, Dr. Thapelo Matsheka, and the first after the 2019 general elections, was delivered to Parliament on the 4th of February 2020.

It has been well received by the labour unions, business community, and the public at large as well as international organisations such as the International Monetary Fund (IMF).

It mainly derived its support from key facets including, emphasis on changing the business-as-usual approach to development; outlining the transformation agenda; fiscal reform that minimizes the negative impact on economic development and human welfare, competiveness and the decision to implement the 2019 negotiated and agreed public sector.

The budget’s progress review shows that economic growth was consistent with the NDP 11 projections, with growth of around 4 percent. At this growth rate, the country would neither ascend to a high-income status nor reduce unemployment towards the Vision 2036 target of a single digit.

Simple calculations of this review confirm that the economy will need to grow the Vision 2036’s target of 6 percent over the next 16 years for per capita income to increase from around USD 8,000.00 to above USD 12,000.00 in current prices.

Further, the population is anticipated to grow by only 2 percent per annum.

For this reason, the focal areas for the forthcoming FY’s budget include measures to increase economic growth towards an average of 6 percent per annum.

Economic diversification is reportedly progressing fairly well. The report says, the share of the non-mining private sector in value added has risen to 66 percent in 2018 from to 63 percent in 2015.

The sectoral pattern of growth showed that the performance of services sector (particularly transport & communications, trade, hotels & restaurants, and finance & business services) has been the silver lining and that of mining sector was subdued whilst the utility sector disappointed.

The drive towards the service sector of the economy, especially to low-productivity activities (tourism, public administration, wholesaling and retailing) does not bode well for the country’s development aspirations.

In the previous versions of this Quarterly Review, it was noted that there is need for the rethinking of economic diversification. Since the country’s domestic market is small, it is inevitable that economic diversification not only focus on broadening the product mix, but also the composition of exports and markets.

This understanding of economic diversification has not been embraced by this year’s budget. Consequently, Botswana’s exports are still overwhelmingly diamonds, which means that the rest of economic sectors are still highly dependent on foreign-exchange earnings from diamonds. Thus, “the transformation programme requires a review of the country’s entire ecosystem”.

The budget review of the economic context also depicts that an economy with positive medium-term prospects, with growth expected to recover to 4.4 percent in 2020 from the expected growth of 36 percent in 2019 largely due to faster growth of services sectors and, thereafter, to slow-down to 4 percent in 2021.

These projected growth rates are comparable to those of the IMF staff’s baseline scenario of 4.2 percent in 2020 and 4 percent in 2021. Thus, the business-as-usual scenario produces growth rates that are still too low to achieve Botswana’s development objectives and create enough jobs to absorb the new entrants into the labour market.

Trade tensions between the two major markets for diamond exports, viz., the United States of America and China, is one of the factors that are cited as contributing to, indeed, undermining not only the domestic growth, but also the fiscal position.

Another notable downside risk to both global and domestic growth is outbreak of the coronavirus in China around January 2020. This has been declared as a global health emergency. In an attempt to contain the spread of the novel coronavirus pneumonia, the Chinese authorities have ordered city lockdowns and extended holidays, of course, at the expense of near- term economic growth, according to the new Stanbic Bank Botswana report.

According to Nomura Holdings Inc., fewer migrant workers returned for work than in previous years and business activities have been slow to pick up. The havoc wreaked by the virus on the world’s second largest economy is likely to spill over to the global economy. In fact, it has resulted in a glut in crude oil and, thereby placed oil markets into a contango, i.e., a market structure where near-term prices trade at a discount to future contracts.

It also presents significant risks one of Botswana’s main drivers of economic growth, diversification and foreign exchange earnings. According to the Financial Times (February 13, 2020), Chinese tourists spent $130 billion overseas in 2018. Regardless of whether the growth materializes, the projected domestic growth rate would not transform the economy to a high-income one.

Progress towards reduction of unemployment, to a target of single digit, and poverty and achieving inclusive growth has also been relatively slow, the Stanbic Bank Botswana Review says.

Continue Reading

News

OP leases Orapa House

21st September 2020
Orapa House

Ministry of Presidential Affairs, Governance and Public Administration (MOPAGPA) has through the Office of the President (OP) proposed to avail Orapa House for use by private training institutions as well as research institutions involved in the area of technology development.

For a very long time the monumental building located in the heart of the city has been a white elephant, despite government purchasing it for nearly P80 million from De Beers in 2012.

However, government has now identified a productive use for the iconic building. “The overall vision is for the building to be transformed into a hub for digital technology research and development to be carried-out by institutions, such as; Limkokwing University, BIUST, BITRI and other relevant stakeholders.”

The decision was taken as government traverse a new path of transforming the economy from a mineral led economy to a knowledge based economy through the promotion of research and innovation. However, the facility will need major maintenance to be carried-out in order to meet the requirements of the proposed change in use.

“The work will include provision of laboratories, work stations, production areas and seminar rooms; audio visual centre, high speed internet connectivity, exhibition areas and offices,” reads the proposal note for the development.

These developments will be done through the refurbishment and maintenance of the main building, workshop, and ablution block, gate house, parking area, grounds, and access control and security service.

“There will be minimal modifications to the structure as it stands. The project is estimated to cost approximately P50, 000, 000,” says the report. In this regard, it is said, the initial scope of the OP facility will be modified to accommodate the envisaged digital technology research and development hub.

With funds needed to improve the building, OP has requested that; “the 2020/21 annual budget provision for Orapa House will need to be increased by P37,500,000 from P2,500,000 to P40,000,000 to kick start the maintenance works.” Funds will be sourced from the projects that have been delayed due to Covid-19 protocols during the 2020/21 financial year.

The building has been a thorny issue for government for years. Initially, OP was expected to move there but the move never materialised. At one point it was a question of whether the Office of the President and the Ministry of Finance and Economic Development were planning to override a decision by Parliament which rejected the proposal to buy Orapa House under the belief that government may be buying its own property. The building was to be bought at a negotiated cost of P79 million.

Again in 2012, Government had wanted to buy Orapa House for a negotiated P79m but the Finance and Estimates Committee of Parliament had rejected the request because of the inconsistencies realised in the supporting documents of the proposed procurement. The valuation of the building was put at P74 million.

The Ministry of Lands and Housing had initially offered De Beers P73, 000,000 as the purchase price. However, De Beers countered with P85, 000,000. On negotiation and converging of the minds, the selling price was finally agreed at P79, 000,000.

Continue Reading

News

Sad state of Brigades: dumped and ignored!

21st September 2020
Brigades

Auditor General, Pulane Letebele, has expressed discontentment at the worrying and deteriorating state of brigades in the country.

In an audit inspection which was carried out at Tshwaragano Brigade in Gabane, a number of observations showed weaknesses and shortcomings in the conduct of the financial affairs of the institution.

According to Letebele’s report, former students of the brigade had been engaged to carry out maintenance works on the school premises, comprising of painting, tiling, plumbing and electrical works, which covered the period from July 2017 to June 2018.

Although the agreed maintenance period had elapsed, the works had not been completed because of unavailability of funds and this situation had persisted up till the time of inspection in November 2019.

Auditor General says arrangements should have been made in time for funds to be available to complete these relatively minor works even before the works commenced.

Various contractors had been engaged for clearing the bush and for the supply of concrete stones, pit and river sand and hiring equipment for digging the trench towards the construction of an auto mechanics workshop, the report said.

It stated that the cost of services and supplies provided totalled P117 949.80. However, despite the services and the supplies having been paid for, the construction works had not commenced for a long period afterwards, resulting in the trench filling back in.

The audit inquiries had not elicited satisfactory responses as both the institution and the Ministry had not accepted the responsibility for the project, although orders for the provision for the supplies had been made. For their part, the Ministry had stated that they had sub warranted funds for the purchase of porta cabins.

Letebele indicated that it is therefore confusing that a project which is critical to the functioning of an institution such as this one would commence without a well-defined plan.

Furthermore, the accounting and maintenance of records for the supplies items were not of the standard prescribed by the Supplies Regulations and Procedures in that the supplies ledger cards, the main accounting records for Government assets, were not properly maintained for the recording of receipts and issues.

This had resulted in significant discrepancies between physical and ledger balances, while in other instances the supplies items had not been recorded at all.

The report says 24 of the 91 new computers found in the computer laboratory at Kumakwane ABC campus were not recorded anywhere, as were the other computers in the storeroom which could not be counted due to the disorderly storage conditions.

The institution had entered into a contract agreement with a security company for the provision of security services at Tshwaragano Brigade, ABC and Horticulture campuses at Kumakwane for a 2-year period which ended in June 2018, WeekendPost learnt.

After the contract expired in June 2018, an extension was granted till the 30th September 2018. Since then, there has been no security service coverage for the institution to-date. According to Auditor General, in the face of prevailing crimes, it is of paramount importance that government properties be protected by provision of security services at all times.

At Tlokweng Brigade, it was noted that the kitchen staff were working under difficult conditions as the kitchen facilities and equipment, such as the cold room, tilting pot, food warmers and solar power for hot water were dysfunctional. The kitchen roof was leaking and men’s restrooms was not working. All these need to be brought to a reasonable and functional state of repair.

The kitchen staff should use a purpose-designed Rations Ledger for the recording of receipts and issues of foodstuffs to reflect the usage of those items. As far back as 2014 the Department of Buildings and Engineering Services had found that the house occupied by the bursar was uninhabitable on account of structural defects, the report said.

A site visit during the audit had established that the house was indeed unfit for occupation as there were cracks on the walls, power switches were not working and the roof was leaking. On a sadder note, there were a number of finished items of clothing, such as dresses, shirts, and jackets from students’ practical exercises from the Fashion Design Textiles Workshop.

Auditor General shared her take on this, saying: “I have not been able to ascertain the policy on the disposal of products from these practicals. A trace of 103 green acid-proof overalls which had been purchased in August 2018 had indicated that there was no record of these items having been recorded or issued, nor were they available in stock. I was not able to obtain any explanation for this situation.”

Kgatleng brigade was also audited and inspected by Auditor General who observed that the brigade has 26 institutional houses at Bokaa, both old campus and new campus. Some of these houses are very old and dilapidated, with two declared uninhabitable. The condition of the houses is a clear indication of lack of care and maintenance of these properties.

At the time of the audit, there was no contractor engaged for the provision of security guard services at the new campus, after expiry of the previous one in July 2019.  It is hoped that steps would be taken to safeguard the security of the premises and government properties against any acts of hooliganism.

In August 2019, there was a break-in at the electrical and at the plumbing maintenance workshops and a number of high value items, such as drilling machines, bolt cutters, spanners and cables, were stolen. The break-in and theft were reported to the police.

“However, at the time of writing this report I was not aware of the outcome of the police investigation, nor of any loss report submitted in terms of the Supplies Regulations and Procedures,” Letebele said.

Continue Reading
Do NOT follow this link or you will be banned from the site!